ALBERT EDWARDS: 'CONDITION RED ALERT' — a recession is imminent

Albert Edwards thinks that the US economy is about to hit the
rocks — hard.

This may not be surprising for anyone who follows Societe
Generale's admitted perma-bear, but according to Edwards' latest
weekly commentary, the signals for a recession are mounting.

Edwards said in
his Ice Age thesis, the idea that we're in the midst of a
multidecade downturn for stocks and financial assets, spotting
recessions is the biggest key to surviving the cold.

"The key to the Ice Age thesis is to sound CONDITION RED ALERT as
each recession approaches, because the equity outcome then always
proves much worse than anyone expects due to the additional phase
of secular de-rating," the strategist wrote in a note to clients
Friday.

Based on Edwards' reading of the latest data out of the US, it
appears that it is
time to sound the alarm. Here's Edwards (emphasis added):

In the aftermath of the latest, weaker than expected, nonfarm
payroll data, economists are certainly more worried. The
excellent folks at Advisor Perspectives highlight the Feds
Labour Market Conditions Index as suggesting a recession
is imminent (the cumulative peak is an average of 9
months ahead of the start of recession and we are now four months
beyond a peak. For investors who think copper still has some
predictive power, its recent move is disturbing.

Societe Generale/Advisor
Perspectives

This, of course, is just another recession in Edwards' Ice Age
thesis, which posits that during long-term equity downturns, it
takes at least four recessions to work through. So far, according
to Edwards, we have only had two since the top of the bubble in
2000, so we still have a way to go until the pain is over.

"The secular bear market only ends when cyclically adjusted
valuation measures reach rock bottom (such as the Shiller PE on
the bottom line)," said Edwards.

"Each successive recession (red part of real S&P top line)
sees huge downturns, usually to new lower lows of both prices and
valuations. That is why we reiterated our view early this year
that in the coming recession the S&P will bottom at 550, a
75% decline from current levels."

Societe
Generale

Of course there are always arguments in the other direction.
Despite the weak jobs report that Edwards mentioned, both
job openings and
weekly jobless claims numbers came in strong for the labor
market. It could be argued that copper is also facing
sector-specific trends, as opposed to macro fears.

In spite of this, Edwards maintains that he is bearish for a
reason, despite it being a difficult spot.

"We remain at the bearish extreme of the market," he wrote.

"It is not a pleasant place. It is cold, dark, and damp. People
either don't speak to you or send you abusive emails. Members of
your own family pretend not to know you. Actually, I made that
last bit up."

So, in Edwards' mind, there is no good news for the market on
either a short-term or a long-term basis.